Economics Editor, The Age

Shouting contest: Martin Parkinson says the age of reason may be over when it comes to winning economic arguments. Photo: James Alcock

The head of the Treasury likes to tell a story about redheads. Or he used to, until he found himself telling it to Julia Gillard.

"Say I decide that redheads are ruining the country," he told the ACT Young Economists Network last week.

"You can already see where this is going...

Illustration: David Rowe

"So I go to the pub on Friday night and we are having a beer and I say redheads are ruining the country.

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"People say, 'Don't be stupid, there's nothing about redheads that means they are ruining the country'.

"So I go to the footy club on Saturday and Martin is over here and I say, 'Martin, I am really worried about redheads and the damage they are doing'.

"He says, 'Don't be don't be stupid, there's no reason why anybody's hair colour is going to have any impact on anything'.

"And then I go to church on Sunday and Peter is there and I say the same thing, and he says. 'Pull your head in, that's just stupid'.

"I am saying that there are dimensions of my community that put constraints around what I can say. They are not forcing me to conform but they are imposing constraints. And we know that what people say influences what they think and visa versa.

"But now I can go home and I jump on the internet. Suddenly I am part of a community that says 'I hate redheads'. I can say redheads are destroying my country and destroying my town and destroying my firm and Angus over here will say, 'Mate you're right. And not only are you right but I've got a way for you to deal with them'."

"That example is deliberately crazily extreme. But the point is that what's happening is there's a fragmentation of messaging. Rather than broadcasts you have narrowcasts, you pick out particular segments of society and send them your message."

As Treasury secretary, Martin Parkinson found himself putting this case to prime minister Julia Gillard.

"She was very tolerant, waiting until about halfway through before pointing out that this perhaps wasn't the best example to use in front of her," he said amid riotous laughter.

Parkinson never once mentioned climate change in his talk on Tuesday night, but as a former head of the climate change department and as secretary to prime minister John Howard's emissions trading task group he'd know well the difficulty of getting broad agreement about almost anything these days - no matter how grounded in reality.

There are still Australians who think the US orchestrated the attacks on the World Trade Centre in 2001, still political parties who think we don't need to link the tax on petrol to prices in the same way as other taxes, and still mining companies that think they shouldn't be taxed on super profits.

He says the internet and blogs, Facebook and tweet streams are creating communities of interest built around just one or maybe two issues.

"It means that if you whip up that community of interest you can can create the impression there's massive public opposition to whatever it is someone is proposing," he said.

"It is forcing newspapers to think about their base. I think personally it has contributed to a politicisation of the position of our media outlets."

Newspapers that might have once been mildly in favour of or against the government become rabid. Instead of considering whether Australia really does need to slow climate change or boost indirect taxes the papers find it more commercially worthwhile to pander to their audiences. Echo chambers attract listeners. Reason does not.

Bleak? Parkinson thinks it's worse than that.

Australia's medium-term economic outlook is depressing, and attempts to deal with it get diverted to the echo chamber.

Australia's standard of living is set to grow at only a fraction of its previous pace. Mining is no longer driving income growth and aging means the proportion of the population in work is shrinking.

"If Australia gets the same productivity growth as its long term average then living standard growth will be will be about a third to a half of what the Australian public has gotten used to," he said.

"You can imagine that creates quite an interesting dynamic for the political process."

Governments that are short of money will find it difficult to cushion households by extra spending. The only way to boost income growth will be by boosting productivity, getting more out of our remaining workers. But measures that do that are often unpopular. They were unpopular in the 1980s and 1990s as the Hawke government brought down tariffs and opened up the financial system. But back then Hawke was able to build a consensus that they were needed anyway.

What's needed today is a shift away from income tax towards indirect tax (income taxes discourage income whereas consumption taxes don't seem to discourage consumption), charging for the use of infrastructure such as roads (it's a cheaper way of easing congestion than building new ones) and lower rates of company tax (so dynamic companies set up here rather than elsewhere). It'd also help to have the tax system simpler so we don't tie up so many of our brightest brains doing accountancy and law.

Getting there is harder these days. Narrowcasting can't be undone.

Parkinson thinks a crisis would do it. But climate change and economic stagnation are creeping up on us slowly. We're keener to argue than we are to listen.

61 comments

Thanks Martin, your input is appreciated and you are indeed a smart cookie. Problem is that you are seeing this largely through the eyes of a bean counter, paying little regard to equity issues. Indirect taxes are regressive, they might raise tax but the burden falls more heavily on those least able to afford it. Perhaps you might devote some attention to corporate welfare and yes there is that 50% discount on capital gains, and while we are at it how about all those multi million dollar super funds paying 15% tax on earnings. I know it will be unpopular but tax deductions for those Beamers in the CBd that do not business travel is worth a look in to. Just some thoughts.

Commenter

KIDDING

Date and time

August 24, 2014, 1:05AM

Yep....and we all know that bean counters are mainly employed by the private sector cash horders, so naturally they're going to encourage any cash to head in their favoured groups directions i feel.

And as far as people still believing that the US had some imput into 9/11, is it any wonder when the pollies have been caught out telling blatant lies time and time again?

When some things are common knowledge about the privately owned US fed-reserve, but they are never printed in the media...well this sort of makes many people cynical about much of the information they are being fed too I would imagine?

Commenter

Calixto

Date and time

August 24, 2014, 9:02AM

Bean counters are some of our brightest brains ? - What sort of people are attracted to professions where creativity is discouraged ? We have accountants who oppose the engineers running companies because they believe they could do a better job. Martin Parkinson's mentality goes nowhere near the topic of wealth creation - only shuffling the deck chairs. This a major problem right around Australia in virtually every business. Obsession with the bottom line loses sight of the importance og quality product and service, and innovation through research and development.

Commenter

adam

Location

yarrawonga

Date and time

August 24, 2014, 9:12AM

Yes, and once again I can agree with the thrust of his argument until the "What's needed today" paragraph that reads of being largely ideological, wacky unproven nonsense economics that harms more than it benefits society, including the economy. But hey, it will make the wealthy even more wealthy while the poor suffer even more.

Commenter

Rover the dog

Date and time

August 24, 2014, 9:13AM

"… lower rates of company tax (so dynamic companies set up here rather than elsewhere)." That didn't work out so well for Ireland.

Commenter

barfiller

Date and time

August 24, 2014, 9:29AM

Yes, of course, we can never change anything that leaves anybody any worse off in any way because that would be 'unfair'.

Commenter

micka

Location

melbourne

Date and time

August 24, 2014, 11:03AM

Thank you Peter Martin - an interesting piece. Parkinson's words are likely to provoke thought; however, it is possible that those who would disagree with Parkinson on this particular issue may simply find fault in his comments - rather than question their own position; no surprises there - it's the 'Human Condition'. We should celebrate and encourage the diversity of views - and the expression of those differences; rarely is there just one clear answer or simple 'truth' in dealing with most issues or situations. This SMH site is not meant to be a monoculture of philosophical or political purity - only for the use of 'good' people.However, at times, the vitriol and dogmatic "you are either for us or against us" attitude of some contributors mimics the 'black and white' certainty and exclusivity of religious (and political) zealotry and fanaticism (there is but one 'truth'); ahh, to have the comfort of such certainty.Meanwhile....The national debt and budget deficit haven't vanished - and, the need for significant structural reform remains; even if we close our eyes to the fact.Whom ever is in power will be confronted by this - yet, the point scoring and ludicrous self-righteousness froth in equal measure from both sides of politics; it happened in the previous Parliament and continues with this one. I wonder what economic challenges we will face in ten years? Who will we blame if things are worse - and, even if we blame the 'other' side for not moving or compromising, will that bring sufficient comfort?

Commenter

Howe Synnott

Location

Sydney

Date and time

August 24, 2014, 12:06PM

"What's needed" is more emphasis on the social ramifications of economic policy. So much of economics ignores those really important quality of life factors that don't have a $$ value - for example, bean counters can only quantify the value of child care if someone other than the child's actual mother does the caring (which is completely bizarre)!

I wish someone would advocate more progressive tax instead of thinking we all want to pay less tax. What we actually want is 'better value' tax, so if we can see we are getting good value for it we would be willing to pay more. Eg, I am happy to pay a considerably increased Medicare levy (based on my income) if it means better services and none of this daft attempt at co-payment tax collection at the doctor, chemist, etc.

And of course, anything with a flat fee innately places a greater proportional burden on those who have less. If that's the best Mr Parkinson's got, well I for one am not sorry to see him go.

Commenter

Mardi

Location

Tuggeranong

Date and time

August 24, 2014, 12:12PM

Micka,anyone being a loser is unfair is not the argument that I have heard being prosecuted about the big issue that has evoked cries of unfairness, which I presume you must be referring to as the article does not mention losers and unfairness. Your formulation is a cute distortion to make those saying the budget is unfair appear illogical and selfish.Why the distortion? Perhaps you cannot argue the real point that most are making about the budget unfairness and how impacts of Government driven change are distributed and impact?

Commenter

Lyn

Date and time

August 24, 2014, 12:47PM

How unfair to burden our children with such a high debt so that we can keep getting handouts now.